Rumours abound that the
lenders had stopped issuing new loans to customers across the
country as the ruble collapse continued, falling almost 13%
against the dollar at the time of writing. Russian banks were
also caught out by the central bank's decision to raise interest
rates by 650 basis points overnight from 10.5% to 17%.

Despite the banks' denials both of the companies' shares
plummeted by 13% as fears grow about the health of Russia's
banking system.

Elsewhere, Gazeta.ru claims that there is a widespread suspension
of currency conversion activities by banks with several large
banks reporting they are reluctant to exchange at these levels
because "a euro
should not cost 100 rubles".

The news suggests that Russia's banking system is struggling to
adapt to the abrupt changes in financial conditions in the
country. This will be of particular concern to the Russian
authorities, and the central bank in particular, as it comes in a
month where Russia's private sector is due to repay some $35
billion in foreign-currency loans.

A good chunk of that is owed by Russia's banking sector. This is
a problem as, unlike the country's commodity exporters that can
sell their products in dollars and euros, most of the banks'
business is conducted in local currency. That means that ruble
falls increase the cost of repayments as they have to convert
ruble revenues back into foreign currencies.

What does this mean?

Well the Russian central bank is moving to be as accommodate as
it can be. Along with its interest rate hike it announced that it
had increased the maximum volume of foreign currency it
provides to Russian banks through its foreign-exchange repurchase
agreement auctions for 28 days from $1.5 billion to $5
billion.

It has also lowered the
interest rate it charges on the currency it gives to banks
from 1.5% above the
London Interbank Offered Rate (Libor) — the benchmark interest
rate at which banks lend to one another — to 0.5% above Libor. A
lower interest rate should make it less expensive for banks to
borrow from the central bank and therefore more
appealing.

However, there are rumours that the Russian banking system is
running low on the collateral — high quality loans and other
financial securities — that they have to pledge to the central
bank to access that money. As a nod to this, Elvira Nabiullina, head of the Russian
central bank, announced last week that "the Bank of Russia plans
to consider the introduction of foreign currency lending on the
security of non-marketable assets". That is, the central bank
could choose to accept lower quality assets in exchange for cash
— effectively allowing the state to take on more risk on the
banks' behalf.

The question now is whether the
central bank and the government have done enough to prevent a
loss of confidence in the currency that could quickly become a
danger to the banking system (potentially in the form of a bank
run where people rush to withdraw their savings, for example).
After two days of double digit falls in the ruble, the signs
don't look promising.